Market Timing: Should You Attempt It?

Top 140. Sep 27, 2001 10:09 AM

» mdorsey - The golden ring worth reaching for?

A notional $100 invested in European equities in 1973 would, with income reinvested, have been worth $2,378 by last Friday, CSFB says. However, had the investor missed out on the 10 best weeks in those 30 years the fund would have been worth just $1,177.

By the same token, had the investor been able to escape the worst 10 weeks of the same period the pot would be a mouth-watering $5,409.

http://www.ftmarketwatch.com/news/story....

-- posted by mdorsey

Top 141. Oct 2, 2001 2:58 PM

» mdorsey - Timing impossible? But oh so tempting.

Maybe it can't be done. But look at what happened. Look at where we are now. Is the risk worth it? Each investor must decide for himself.

October 1, 2001
Vanguard 500 Index (VFINX) 
YTD total return  –20.67% .
12 month total return  -26.87%.
Since 12/31/99 return  -27.86%
Vanguard GNMA (VFIIX)
YTD total return 8.06%.  performance vs 500 Index +28.72% 
12 month total return  11.66%…………………………+38.53%
Since 12/31/99 return  20.18%…………………………+48.04%
Gain needed by 500 index to pull even…………………+66.5%
Vanguard Total Bond Mkt Index Inst (VBTIX)
YTD total return 8.79%. performance vs 500 Index +29.46%
12 month total return 12.95%…………………………+39.82%
Since 12/31/99 return 21.33%…………………………+49.19%
Gain needed by 500 index to pull even………………..+68.1%
Vanguard Short-Term Bond Index (VBISX)
YTD total return 8.76%. performance vs 500 Index +29.43%
12 month total return 11.75%…………………………+38.62%
Since 12/31/99 return 18.49%…………………………+46.35%
Gain needed by 500 index to pull even………………..+64.2%

Is it time sell those bonds and buy stocks? Maybe. But, my guess is bonds will keep outperforming for the next 3 months. At some point we may need to move to money market till the picture is clear.

-- posted by mdorsey

http://www.contracostatimes.com/news/col...

Top 142. Oct 2, 2001 3:21 PM

» Rande - Stay the Course to Reap the Gains

October 1, 2001
Contra Costa Times, Walnut Creek, Calif

Stay the Course to Reap the Gains

BYLINE: By Steve Butler

The flood of letters from market timing advisers has increased its pace since the market decline began last year. If you have even a touch of bi-polar disorder you do not want to open these envelopes. They will trigger a severe bout of depression.

For example, a solicitation for an investment letter called Bob Brinker's "Marketimer" came this week that really makes me wish I had spent the $ 185 and listened to Bob. Bob, predictably, advised everyone to be 60 percent in cash as of January 2000.

The advertising piece points out that he was also committed to stocks throughout the '90s when many market timers were banking their fires with investments in cash. As market timers go, Bob has a huge following, and there is much to learn from what he has to say about the markets and investing in general. However, the S&P 500 index has outperformed a Bob Brinker portfolio over the years since 1990 -- and this period includes the most recent downturn.

Added to the cost of timing is the tax impact and loss of capital from selling funds and paying taxes on gains as we move into cash periodically. Fortunately, in retirement plans, this is not an issue. However, for those timing their taxable assets, the tax costs alone makes this strategy very expensive and easy to beat with a passive investment strategy. Remember, with an index fund that rarely sells assets, there is no annual taxable event to speak of. You pay capital gains taxes eventually but only on what you take out – much like a retirement plan.

A review of the daily performance of the S&P 500 can be instructive. It illustrates that major annual gains occur on single days. Amazingly, just two days a year when the market is up 5 percent adds 10 percent to the annual rate of return. It is interesting to see how much of the market's increase in value is concentrated in a relatively small number of days, and sometimes these special days occur right in the middle of an otherwise downward trend.

By extension, the same is true when we look at years. In the crash of 1929-31 the market lost about 60 percent of its value. But in 1933 through 1936 it more than tripled in value. A market this volatile offers a terrific tool for those who are dollar cost averaging and investing at a methodical, monthly rate. This describes 401(k) investors who are purchasing mutual fund shares today at the lowest prices since 1998.

Stocks are the only things we tend to buy when they are expensive. With everything else, be it cars, furniture, clothing or other consumer goods, we struggle to find a deal. We wait until something is on sale. We load up those big carts at Costco or Sam's Warehouse and buy a year's supply of shampoo because we save so much money. Yet, when stocks beecome a relative bargain, lik they probably are today, our natural tendency is to sit on the sidelines and wait for them to get expensive again.

Most retirement savers have managed to play it smart. Hewitt Associates, a major international employee benefits firm, reported the degree to which 401(k) investors were moving out of equities and into cash. The rate was nine times greater than normal. What the statistic did not point out was that "normal" was almost non-existent. The average 401(k) investor makes almost no investment changes at all.

Another helpful thought: Daily stock prices are determined by those who are actually buying and selling on a given day. The concept is called "marked to market" and it means that the entire company is valued based upon the sale of whatever small portion is traded in the markets. If more people are selling on a given day than there are buyers, then the stock prices can drop dramatically. This can be an accident in timing more than any wholesale erosion of public confidence in the economy. It is also usually an overreaction to some event. Taking advantage of these "market inefficiencies" explains in part how Warren Buffet became so successful.

Mutual fund market timing newsletters are not without some merit. They're just not as valuable as their hyperbole would have us believe. After all, pure chance plays a role in the success of at least some timers with recent above-average results.

I must confess that I have learned a few things from the advertising pieces themselves. However, the danger is that this flood of advertisements will leave us feeling bad, that we have done something wrong by staying in the market. Worse yet, they can prompt us to sell into the teeth of the recent declines.

It is important to remind ourselves that we sat down years ago and planned to invest for retirement over a long period of time. We agreed that common stocks were the best long-term investment, and we accepted the fact that returns would fluctuate substantially. Bearing up under this risk is the price we pay for earning an average of 10 percent to 12 percent over time rather than 3 percent in a risk-free money market fund. There is no free lunch. If there is a market timer who will remove that risk for the cost of an annual letter, it is impossible to know, prospectively, which one of the many contenders is capable of beating market averages. Let's acknowledge our vulnerability and summon up our resolve to stay the course and stick to the basics.

Steve Butler is president of Lafayette-based Pension Dynamics Corp. and author of the book, "401(k) Today." Have a question for him? E-mail him at mr401k@pensiondynamics.com.

-- posted by Rande

Top 143. Oct 2, 2001 3:28 PM

» CaptRon - Re: Stay the Course to Reap the Gains/ NOT

In response to message posted by Rande:
Contrary opinion, M8...8-)
http://www.suite101.com/discussion.cfm/i...

But you've been used to those lately, lol.

-- posted by CaptRon

Top 144. Oct 2, 2001 3:43 PM

» Rande - Re: Re: Stay the Course to Reap the Gains/ NOT

In response to message posted by CaptRon:

Oh yeah, goes with the territory. smile

Contray-contrary opinion -- Certainly, taxes are not an issue when it comes to deferred accounts. There, all you have to worry about are transaction costs and the potential cost of being wrong (i.e., in/out of the market at the wrong time). And tax-defferal works both ways too. There are probably a lot of folks who wish they could at least have Uncle Sam and their state tax authorities share in the pain of their quick-buck-short-term-no-tax-turned-long-term-hold QQQ trade from last October. smile

Factoid: Middle-class assets run about 50% taxable and 50% tax-deffered by most counts. High-net worth assets are overwhelmingly in taxable accounts.

-- posted by Rande

Top 145. Oct 2, 2001 3:59 PM

» CaptRon - Re: Re: Re: Stay the Course to Reap the Gains/ NOT

In response to message posted by Rande:
Lol, R.
Good points re:taxes. Exactly why my favorite vehicle for following "Seasons" with non-qualified $s is Variable Annuity.
JMHO, extra 1 3/4%+- annual costs are far outweighed by versatility of moving w/o regard to taxes.

BTW, BB was death on VAs UNTIL the 60/40 call. Then, ten years worth of LT cap gains kicked in for his subscribers. He got real quiet on 'em then, along with a few other things.
Hell, no wonder the govmn't was running a surplus....8-)

-- posted by CaptRon

Top 146. Oct 2, 2001 4:07 PM

» mdorsey - Morningstar Research Director favors bonds.

On tonight's NBR with Paul Kangus, the research director for Morningstar said, "Bond funds should beat stock funds for at least one more quarter". Sounds familiar.

-- posted by mdorsey

Top 147. Oct 12, 2001 8:41 AM

» KLR - Market timing is, in reality, futile for the majority ...

I'm sure a lot of you get junk email touting various "investment ideas". Here is one I get regularly; today he is issuing a sell signal for a portion of the "aggressive portfolio".

What is refreshing here; however, is that, unlike Brinker, he is admitting some bad calls and taking his lumps.

Also, note the unusually straightforward disclaimer....Something you don't see at the bottom of the Marktimer....

The Tactical Timing System has issued a sell signal. The following positions will be sold:

Aggressive Portfolio:

Infineon Technologies (NYSE: IFX)

30% of the position in Biomet (NYSE: BMET)

30% of the position in Clayton Homes (NYSE: CMH)

30% of the position in Unilever (NYSE: UN)

Conservative Portfolio:

No Changes

Target Allocations:

Aggressive Portfolio: 135% equities; -35% cash

Conservative Portfolio: 70% equities; 30% fixed income

Commentary: The interest rate cuts (lowest rates since 1962), massive amount of sideline cash (highest as a percentage of total market cap since 1982), and extreme negative sentiment readings based on the volatility index and put/call ratio have led to a buying panic. There is a lot of pain being felt by the short sellers currently. This is a tough sell signal for me to implement since a lot of the holdings recently purchased are in the red. Specifically, I was counting on an increase in demand for computers with the release of Windows XP to improve the fortunes of AMD and Gateway. However, the stocks of these computers collapsed before the new operating system hit the shelves. I can't bring myself to sell AMD and GTW, despite their weak relative performance, because I'm still counting on robust computer sales. Therefore, partial positions in several of the stronger relative performers will be sold off to reduce the system's heavy stock allocation.

Disclaimer: It is very difficult to outperform a buy and hold strategy. Most investors have found themselves best served over long time horizons by investing regularly in a diversified portfolio of stocks or low cost, broadly diversified indexed stock funds. Market timing is attempted, but not endorsed here as most practice it. Market timing is, in reality, futile for the majority who attempt it due to faulty methodologies. Information presented is based on analysis of past data and assessments by the Tactical Timing System model. Future performance may not reflect past performance. Profitable trades are not guaranteed. No system or methodology ensures stock market profits. No guarantee is made regarding the reliability or accuracy of data.

-- posted by KLR

Top 148. Oct 18, 2001 10:24 AM

» KLR - Timer sees another market drop, then recovery

Looking for volume all over the place
Timer sees another market drop, then recovery

By Thom Calandra, CBS MarketWatch
Last Update: 12:30 PM ET Oct. 18, 2001

SAN FRANCISCO (CBS.MW) - A well-known market timer sees U.S. stock indexes falling another 10 percent to 15 percent in the coming weeks, or even days.

Mark Leibovit's sense of when to buy and when to sit on cash comes from an analysis of trading volumes for individual stocks and for stock indexes and exchange-traded funds. For many years, Leibovit served as one of the stock-picking "elves" on the "Wall Street Week" public television program.

"We've had a pretty nice run already and are at or near a little top here," Leibovit said this week, when the Nasdaq 100 tracking stock, known as the QQQs (QQQ: news, chart, profile), were selling for $35. They're now at $33 and headed, says Leibovit, for $28.

As chief market strategist for VRTrader.com, Leibovit uses volume analysis for clues on the direction of the stock market. He says his volume-reversal trading program has returned about 30 percent this year. Leibovit also employs his technical analysis for Flexible Plan Investments, a Michigan investment adviser that uses market timing for a small part of its holdings.

Market timing is a subject of much debate. Mutual fund companies, for example, are wary of customers who intend to buy and sell their holdings frequently in an attempt to time the market's ups and downs.

Yet hedge funds and other aggressive investors enjoy a growing success with market timing. Average holding periods for U.S. and European stocks are the briefest they've ever been. Loyal buy-and-hold investors this year and last have been hit hardest by the stock market's relentless decline. Many Americans, like deer caught in the headlights, have seen their stock-based retirement accounts shrivel by 60 percent or more in the past year-and-a-half.

Quantitative analysts, meanwhile, have ranked among the most reliable in the continuing bear market that began 20 months ago. Their outlook, largely negative, derives from detailed studies of investor sentiment, put-call options ratios, stock charts, moving averages and other technical indicators.

At age 52, Leibovit has been publishing his Volume Reversal Survey newsletter since 1979. He says he can detect points when a stock or a stock index is shifting direction, largely through an analysis of trading volumes. "Volume precedes price; it's that simple," Leibovit says from Scottsdale, Ariz. "I bet 90 percent of Nasdaq level-two traders use price as their only indicator. But you'll see volume shifts well before moving averages (for stock prices) cross one another."

Turn up the volume

When Leibovit finds a volume shift, "it says there are more sellers than buyers at key reversal points in the market, or buyers than sellers." He rates as a mentor Richard Arms Jr., a New Mexico technician who invented the short-term trading index. That gauge, known on Wall Street as the TRIN, links the relative strength of trading volume with a ratio of advancing vs. declining stocks.

As Leibovit explains it, a classic case of volume reversal occurs when a company's shares, after changing hands at high prices but with light volume, declines on very strong volume. That means the stock is shifting to deep-pocket investors with staying power.

One case of such a pattern might be Allied Waste (AW: news, chart, profile), a hauler of trash and other garbage. "You could get a 40 percent move in the stock on the technicals alone," he said about shares of Allied Waste, which is based in Arizona and is the second largest waste management company in the United States. The stock price at $13.45 is 35 percent below its June high.

Leibovit also likes the gold stocks, among them Newmont Mining (NEM: news, chart, profile). "I've seen volume coming into the gold stocks all year," he says. "As far as I see there should be a huge acceleration in price but so far it hasn't happened."

As for the exchange traded funds, this market timer is short the MDY (MDY: news, chart, profile), which tracks the Standard & Poor's Mid-Cap Index. He also sees the SPY (SPY: news, chart, profile), which tracks the Standard & Poor's 500 Index, falling to about $100 in the next several weeks from its current $108.

His one-year outlook is upbeat, with the Nasdaq Composite reaching 2,500 in 12 months from its current 1665. "If the market comes down really big here this week or next," I'd be looking to buy," he says.

-- posted by KLR